U.S. stocks plunged on Monday in the heaviest volume since last year's flash crash, taking the S&P 500 down more than 6 percent on growing fears of a recession, in the first session after the historic loss of the country's pristine triple-A credit rating.

Panicked selling resulted in the S&P 500's worst day since December 2008, with every stock in the benchmark index ending in negative territory.

Volume totaled 17.89 billion shares traded on the New York Stock Exchange, the American Stock Exchange and Nasdaq -- the heaviest volume since the flash crash of May 6, 2010. Monday's volume was more than twice last year's daily average of 8.47 billion.

We're starting to see real disorderly selling, far more than what we've been seeing, said Matthew Peron, head of active equities at the Chicago-based Northern Trust, which has about $650 billion in assets under management.

Based on the surge in the VIX, he added, We're starting to move into panic mode.

Perceptions that Washington is incapable of addressing the problems of rising debt and slowing growth have contributed to the selling. This was underlined by selling that accelerated during a statement from President Barack Obama that offered few concrete ways to resolve the fiscal and economic problems.

At Knight Capital in Jersey City, one of the biggest trading venues in the United States, the atmosphere grew more heated as losses accelerated into the close. After the bell, traders huddled in groups, staring at their computer screens and discussing the day's actions.

It's scary, it really is, said Joseph Mazzella, senior equity trader, who had been watching the market's intraday low as a support level. I hate it when the market closes below its low, as it sets the stocks up for a follow-through tomorrow.

The anxiety about the U.S. economy was matched by rising worries about Europe's debt problems, where the latest initiative to buy Italian and Spanish bonds is far from enough to solve the euro zone's debt crisis.

The CBOE Volatility Index, Wall Street's fear gauge, jumped 50 percent to end at 48. This marked the first time the VIX has topped 40 since May 2010.

The S&P 500 is down 17.9 percent from its 2011 closing high, reached on April 29 -- putting it close to the 20 percent decline from a recent peak that Wall Street defines as bear market territory.

Monday's slide marked the first time since November that the Dow has fallen below 11,000.

It is a panic, and almost by definition, it doesn't have an issue. It wouldn't matter what it was, said James Paulsen, chief investment strategist at Wells Capital Management in Minneapolis, which has over $340 billion in assets under management.

The Dow Jones industrial average lost 634.76 points, or 5.55 percent, to end at 10,809.85. The Standard & Poor's 500 Index sank 79.92 points, or 6.66 percent, to finish at 1,119.46. The Nasdaq Composite Index plunged 174.72 points, or 6.90 percent, to close at 2,357.69.

While all 10 S&P sectors lost more than 3.5 percent, the groups most sensitive to the economy, such as banking and commodities, were the hardest hit. The S&P financial index fell 10 percent while the S&P energy index shed 8.3 percent. U.S. crude oil futures settled at $81.31 a barrel, down $5.57, and in post-settlement trading fell as low as $80.17 -- a drop of more than 7 percent from Friday's close.

Bank of America Corp plummeted 20.3 percent to $6.51. The Dow component was the most actively traded name on the New York Stock Exchange and the S&P 500's biggest loser.

GLOBAL LOSS OF OVER $1 TRILLION

Monday's global stock market sell-off wiped out more than $1.35 trillion in investor wealth worldwide, according to the 5.2 percent drop in the MSCI World Index . The index began the week with a market value of $26.42 trillion.

The S&P 500 alone lost $729.3 billion in value with its drop for the day of 6.66 percent.

Late on Friday after the market's close, Standard & Poor's cut the United States' perfect long-term credit rating of AAA by one notch to AA-plus on concerns about debt levels in the world's largest economy. The downgrade could eventually raise borrowing costs for the U.S. government and companies, as well as for consumers.

On Monday, President Obama blamed the downgrade on political gridlock in Washington and said he would offer some recommendations on how to reduce federal deficits.

Almost universally my clients are blaming this on 'The Government,' this lack of confidence -- and that is what this is, said William Suplee, a financial adviser at Structured Asset Management in Paoli, Pennsylvania. This sell-off is uniformly blamed by my clients on the government's inability to act rationally.

Traders also cited expected redemptions and margin calls for the sharp early afternoon declines.

We saw a lot of short selling coming in, especially into ETFs at around 2:15 p.m. said Glenn Starkman, global head of sales trading at Dahlman Rose in New York.

About 66 stocks fell for every one that rose on the New York Stock Exchange, while on the Nasdaq, 22 stocks fell for every one that rose.

Even the European Central Bank's dramatic intervention in bond markets, which pushed down yields on Spanish and Italian bonds, was not enough to stem selling.

GETTING CLOSE TO A BOTTOM?

But some analysts noted the mass selling has made some stocks attractive at much lower prices.

Based on historical sell-offs, it wouldn't be surprising to see a rebound in the more oversold areas, given how far down we've come and how fast, said Brad Sorensen, director of market and sector analysis at Charles Schwab in Denver.

Barclays Capital, in a note to clients, wrote that the decline created a time to buy, and that the recent losses left equity valuations at levels of cheapness not seen since the early 1980s.

I've been in this business almost 30 years. When it gets to the point where you want to throw up, it's probably time to buy, and we're there, said Angel Mata, managing director of listed equity trading at Stifel Nicolaus Capital Markets in Baltimore.

(Reporting by Ryan Vlastelica; Additional reporting by Chuck Mikolajczak, Ed Krudy and Lauren Young; Editing by Jan Paschal)